Sunday, March 25, 2012

Last August, Nobel Prize winning economist Paul Krugman threw out the idea that if the American government faked an alien invasion from outer space, we’d have all the fiscal stimulus we could ever want. The massive build-up would overwhelm our worries about inflation and budget deficits, Krugman said, and the slump would end in 18 months.If the invader were the Borg, of course, resistance would be futile. But still, the slump would end, one way or another.Some of us lived through the Japanese invasion of the American auto industry in the 1970s and 80s when Detroit counter-punched with the Pinto (exploding gas tank), Vega (rapid rusting), installation of Chevy engines in Oldsmobiles (lawsuits) and, of course, the Volaré (massive recalls). America finally prevailed by building and purchasing 650 billion minivans--a good strategy, but hardly enough to slow down a real Borg. Now, Americans are told they are suffering a full-on economic invasion by the Chinese. Firms from China are the prime contractors on everything from infrastructure improvements in New York City to “almost every Americana-themed trinket sold in the Smithsonian.” Former Goldman Sach’s bankers are authoring books with offensive, unspeakable titles telling us that we should be paranoid. Websites list the many ways the Chinese economy is “beating the living daylights” out of the U.S. economy.Should we run? Hide? Gaze lovingly at our Mt. Rushmore collectible post and faux bronze Statues of Liberty? Is the wolf really at the door?

Aliens are apparently libertarians

Wouldn’t it be interesting to know what the start of a real, massive, sustained economic invasion might really look like?William Thomas Stead (1849-1912) was a colorful British muckraking journalist and editor, once thrown in jail for “buying” a young girl as part of a newspaper exposé,and among the most famous people to die aboard the Titanic. Ten years before that, his 1902 book, The Americanization of the World, warned his countrymen that the invasion of their land had begun, and carefully described what it looked like.

The Americans have brought to us a host of ingenious inventions and admirably perfected machines which we are incapable of producing for ourselves,” Stead wrote. “No one can say that in sending us the typewriter, the sewing-machine, the Linotype, the automobile, the phonograph, the telephone, the elevator, and the incandescent electric light, they invaded any British industry. These things were their inventions. After they were introduced, we imitated some of them or invented others on the same principle, but they first opened up the new fields. . .Several of our manufacturers who have been taught by Americans how to make these things, yet cry out that they are being invaded and ruined by American competition, whereas but for the Americans these appliances would never have been in demand in this country.

Is this perhaps what a real economic invasion looks like? Stead didn’t talk about low cost. He didn’t discuss industrial espionage or theft of intellectual property. He talked about making new, ingenious things that people really wanted, and making them at a low enough cost that they could be delivered profitably across the ocean. “The Americans have done with electricity what the British did with steam at the beginning of the last century,” Stead claimed about the two technological sensations of his times. “All the nations came to us for steam-engines, just as we are going to the United States for dynamos and all the elaborate, ingenious and costly apparatus necessary for working electric trolleys.”

Just in case you needed to know what one looks like

Typewriters. . .are imported from New York at an average value of £200,000 a year. The British Government had to buy their telephones for London from the Western Electric Company of Chicago. In electric traction half of the motors on British street cars are American. The Central Railway was equipped by the New York General Electric Company, and another New York firm boasts that they have supplied eleven of the leading street electric tramlines in Great Britain. . .The Eastman Kodak Company imports £200,000 worth of American photographic apparatus every year. A similar amount of money is spent every year in the purchase of American sewing machines. The sale of American drugs in Great Britain amounts to very nearly a quarter of a million a year. The Americans are importing soda-water fountains, blouses for women, carpet-sweepers, darning machines, patching up apparatus. . . .

Stead believed that the success of Americans was their singular focus on industrial pursuits: Germany had an army to distract it, France and Italy the arts and church, Britain its colonies and navy. “In the United States the whole undivided genius of the people is concentrated upon the pursuit of wealth.” This was reinforced by education, democracy and incentives to production—for example, an American secured a 17-year patent for £8 and an Englishman a 14-year patent for £99.Stead gave Great Britain two choices, to “merge the existence of the British Empire in the United States” to remain part of “the greatest of all World-Powers,” or to accept US supremacy and “our ultimate reduction to the status of an English-speaking Belgium.”Apologies to Belgium, but resistance, Stead believed, was futile.He even quoted the New York Evening Journal:

If any Englishman wants to know why the American race can beat the English race in the struggle for industrial precedence, let him stand at the Delaware-Lackawanna station, in Hoboken, from seven until nine in the morning as the suburban trains come in. Far outside of the big railroad station the train appears, puffing and panting, and while it is still going at dangerous speed, men, young and old, are seen leaning far out from every platform. As the train rushes in the men leap from the cars on both sides, and a wild rush follows for the ferry boat. Not a man is walking slowly or deliberately. It is one rush to business; it is one rush all day; it is one rush home again. The gauge on the engine tells the pressure of steam and the work that the engine can do. The gauge on the American human being stands at high pressure all the time. His brain is constantly excited, his machinery is working with a full head of steam. . .The American succeeds because he is under high pressure always, because he is determined to make speed even at the risk of bursting the boiler and wrecking the machine.

Coxey's March on Washington

A little perspective here might be useful, because it's not entirely clear America felt like an invading economic army at the end of the nineteenth century. The summer of 1893 brought a major depression to America--600 banks closed that autumn and perhaps 25% of the urban unskilled were unemployed. This was just one more blow in a global depression that stretched from 1873 to 1896. In 1892, Congress officially took aim at “the Chinese menace,” those immigrants with whom Americans were said to “have nothing in common." In 1893, the U.S. Census Bureau informed Americans that their beloved frontier was closed. The following year, Jacob Coxey’s “petition in boots” drew ragged bands in a march on Washington punctuated that same year by the famous Pullman strike. In 1896 the US Supreme Court sanctioned Jim Crow by ruling in Plessy v. Ferguson that states could constitutionally enact legislation requiring persons of different races to use “separate but equal” segregated facilities. By 1901 Mother Jones was reporting on deplorable conditions in Southern cotton mills. If Americans wanted a reason to panic, to envision the end of normalcy, they certainly had it. In his classic The Search for Order, Robert Wiebe concluded, “Men from all walks of life, already shaken by an incomprehensible world, responded to any new upheaval as an immediate threat. . .Anxiety [was] like the common cold.” (See here for my prior post on American nervousness.)Meanwhile, armies of anxious Americans continued their global conquest. A contemporary of Stead’s, journalist Frederick McKenzie, authored The American Invaders in 1901 and brought the full message home to the British Empire:

In the domestic life we have got to this: The average man rises in the morning from his New England sheets, he shaves with ‘Williams’ soap and a Yankee safety razor, pulls on his Boston boots over his socks from North Carolina, fastens his Connecticut braces, slips his Waltham or Waterbury watch in his pocket, and sits down to breakfast. There he congratulates his wife on the way her Illinois straightfront corset sets off her Massachusetts blouse, and he tackles his breakfast, where he eats bread made from prairie flour (possibly doctored at the special establishments on the lakes), tinned oysters from Baltimore and a little Kansas city bacon, while his wife plays with a slice of Chicago ox-tongue. The children are given ‘Quaker’ oats. At the same time he reads his morning paper printed by American machines, on American paper, with American ink, and, possibly, edited by a smart journalist from New York City. He rushes out, catches the electric tram (New York) to Shepherd’s Bush, when he gets in a Yankee elevator to take him on the American-fitted electric railway to the City. At his office, of course, everything is American. He sits on a Nebraskan swivel chair, before a Michigan roll-top desk, writes his letters on a Syracuse typewriter, signing them with a New York fountain pen, and drying them with a blotting-sheet from New England. The letter copies are put away in files manufactured in Grand Rapids. At lunch-time he hastily swallows some cold roast beef that comes from the Mid-West cow, and flavors it with Pittsburg pickles, followed by a few Delaware tinned peaches, and then soothes his mind with a couple of Virginia cigarettes. To follow his course all day would be wearisome. But when evening comes he seeks relaxation at the latest American musical comedy, drinks a cocktail of some Californian wine, and finishes up with a couple of ‘little liver pills’ made in America.

That, I submit to you, is what a true, “shock and awe” economic invasion looks like, from New England sheets to little liver pills: It’s not built on being good at breaking into corporate websites. It’s not built on the theft of intellectual property, or an institutional willingness to overlook it. It’s not built on soul-numbing, low-cost labor. It’s not built on risk-free government capital. It’s not built on large populations (which cut both ways, as we are sure to find out this century) or high birth rates. It’s not built on the ephemeral advantages of exchange rates and inflation and “foreign investment.” It’s not built on disenfranchising large segments of the population from the educational process, or judging them as “not worthy” in elementary school (or worse, at birth). It’s not built on everyone having a cellphone. It’s not even built on “world class quality,” which is its own kind of double-edged sword.

An invasion comes about when an economy puts the self-renewing, inclusive processes in place that create products and services that people desperately want, products that consistently improve the standard of living and the lot of mankind. They might be cheap. They might be expensive. They might be government funded or privately made. The good ones might take years to work really well. But sustained creation and innovation is the only way to have a really profound invasion.

McKenzie believed the secrets of America’s success was better education, longer working hours, receptivity to new ideas, better plant, and most of all, the freedom from “hampering tradition.” He summarized it all by saying, “American brains, enterprise and energy are today ousting British traders in the battle for commerce in many lands. ..The real invasion goes on unceasingly and without noise as shown in five hundred industries at once. From shaving soap to electric.”So, I've been reading the news and checking the blogs (of doom and gloom), wading through the jeremiads and surviving the manifestos and even skimming the books with unspeakable titles. I’m looking for signs of relentless innovation from afar crossing the border and taking over my life, infiltrating my being from sheets to little liver pills.

I don't know if America is being invaded or not. I now know, however, what a real economic invasion looks like, and I don't see it.

Monday, March 19, 2012

Two articles passed before my eyes in rapid succession yesterday, a sunny, warm, dry, March Sunday in New England.The HBS Alumni Bulletin reported in its latest issue the results of a fall 2011 survey of 10,000 HBS grads who were asked why the United States was losing its competitive edge. Entitled “Prosperity at Risk,” the results indicated that senior executives were most concerned about the dysfunction of America’s political system, the complexities of the tax code, the failing K-12 educational system, an inefficient legal system, oppressive regulations, poor infrastructure and insufficient workforce skills.A few minutes later, I plucked the March 18, 2012 New York Times magazine from my pile of reading material and spotted an article by Adam Davidson called “Why Some Countries Go Bust.” For years, economists have argued this issue, pointing to culture, geography, soil and navigable rivers, colonization, freedom of markets (Adam Smith) military might, and overpopulation (Malthus). Now, however, rock-star M.I.T. professor Daron Acemoglu claims that countries get rich (or maintain their prosperity, if you like the HBS survey language better) based on something much simpler:the degree to which the average person shares in the overall growth of the economy. Both Rome and medieval Venice were examples of “fairly open and prosperous societies” that reverted to closed and impoverished aristocracies. “It’s hard to read these sections,” Adamson writes, “without thinking about the present-day United States, where economic inequality has grown substantially over the past few decades. Is the 1 percent emerging as a wealth-stripping, poverty-inducing elite?”It’s the difference, one might conclude, between what we heard last week about Goldman (our clients are “muppets”) Sachs, and what Howard (let’s treat customers & employees & growers fairly) Schultz at Starbucks has been working on lately. (See here and here.)

I looked back at the HBS survey, presumably answered by many in the blessed “top one percent,” to see if I could find “we aren’t sharing opportunities adequately” or "we aren't sharing wealth fairly" as primary reasons for our lack of competitiveness. To be fair, they weren't even offered as a choices to the respondents. The most closely related possibilities, those about worker fairness, value-chain balance, economic opportunity and the general expansion of wealth, came down to “flexibility in hiring and firing” and “availability of skilled labor.”

Funny, this lack of competitiveness all seems to come down to what’s being done to us. Fix the schools, fix the government, fix the tax code, fix the legal system--then we can be more competitive and prosperous. Fix the muppets, for that matter.

Maybe the next HBS survey will offer more choices.Maybe, too, Howard Schultz is just a rare bird.

But then--so too is a sunny, warm, dry, March Sunday in New England.Which means there’s hope.

Saturday, March 10, 2012

One day years ago I came home from work and told my wife I’d had an experience in the office like I “was in an
MTV video.” (For those too young to remember, MTV used to actually
play music videos.) It was an odd sensation, something I first thought
might be a silent migraine. The episode came with floating spots, flashing and muted
lights, a little vertigo, and a real problem focusing on my computer screen or on any kind of reading
material. Fortunately, it lasted only a few minutes.

Needless to say, I told my wife
but I did not tell my board of directors.

I have now come to believe that episode was my
body acclimating itself to too much technological input--too many phones, emails,
screens, texts, beeps, chimes, skims and scans. It was an event somewhat akin to lying in
bed when I was very young and feeling my legs ache through a growth spurt.
In other words, I was having a physical reaction to technological stimulus, a kind of re-calibration to change.

Saturday, March 3, 2012

A few weeks ago I
found myself in Fort Myers, Florida, where I literally stumbled upon the Edison
and Ford Winter Estates, 20 acres of botanical gardens, homes and laboratories established
in 1885 by Thomas Edison.

Fort Myers may be a
happening place today, but in 1885 it was little more than 40 homes connected
to civilization by a cattle trail. In
fact, until the early 1900s, Edison was forced to ship everything he and his
family required, including the timbers from which they constructed their home,
by water. Edison’s wife, Mina, must have
been an incredibly good sport to tolerate long months of banishment from the relatively
civilized surroundings of New Jersey while her husband grew and harvested every
plant known to man in an attempt to efficiently manufacture natural rubber.

HERO WORSHIP.Thomas Edison was about 5’10” tall.His statue on the grounds of the Estates must
be seven or eight feet tall, maybe more.Photographed next to him, we all shrink in comparison. That’s the point, I suppose, but why must we
do that with all of our heroes?

And, while Thomas
might have been pleased by the added height and heft, it’s hard to believe Mina
would have appreciated being supersized.

MENTORING. Edison came to Fort Myers for the warmth,
adventure and quiet—and for the bamboo, which grew abundantly on his property
and happened to be one of the best natural materials for light-bulb
filament. Henry Ford, who purchased and very
occasionally occupied the home next to Edison for about five years, came to
Fort Myers for Edison. The great inventor
had encouraged the struggling automobile entrepreneur, becoming his lifelong
friend and mentor.

Edison came for the weather, the peace and quiet—and the bamboo.

Ford came for Edison.

SOME THINGS SHOULDN’T
CHANGE. Edison worked for about five
years as a telegrapher, in the process becoming a master of his craft and
building a portfolio of some 100 patents in that single field. It was only then that he hung out his shingle
as an inventor and tried to change the world.
Working in a company environment, learning a job skill, understanding
what needed to be fixed before marketing a solution: If the greatest inventor
in American history could keep the horse before the cart, perhaps it’s a lesson
from which our newly-minted entrepreneurial app-writers could profit.

SOME THINGS DON’T
CHANGE. On the other hand, when Edison
invented the phonograph he really had no idea how to market or make money from
it. The first go-to-market plan involved
wheeling models around to county fairs and charging folks a penny or two to see
it work—all of which called for, as we now say in technology start-ups, a reset.

Things didn’t always sell as hoped. Or maybe, as George Foreman later proved, the sandwich grill was simply an idea ahead of its time.

But the lightbulb worked out ok.

BEATING PLAN. Edison’s goal was to invent something minor
every month and something major twice a year.
It was an aggressive plan that he vastly exceeded.

Edison even had his own brand of cement, experimenting with precast structures. Here, his pool is spring-fed at a nice, comfortable 80F or so, all constructed from his own model and material.

GETTING AWAY. Edison, Ford, Harvey Firestone and John
Burroughs, joined later by others, escaped into the wilderness on regular
camping trips. It was a way to think,
talk shop, and re-energize apart from the daily grind. Known as the Vagabonds, their outings became
famous. . .

COMING BACK. . . .so much so that they began inviting the
press to follow them. Instead of
camping, they began shipping their dining room furniture and turning their
wilderness encampments into photo ops.
They even invited the President to join them. The Vagabonds weren’t the first, and they
certainly weren’t the last to get waylaid by America’s cult of celebrity.

I’m pretty sure
Edison would have been on Twitter.

A 1921 edition of the Vagabonds. Edison is front and center. Ford is on the left, apparently shaving with
a straight-edge but no mirror: the true sign of an entrepreneur.

THE BACK 40. It’s generally acknowledged that Edison’s
second forty years did not measure up professionally to the first 40, despite
his best efforts. Some of it was a
change in personal priorities, as he spent more time with his family and had
many more obligations related to his celebrity status. Some of it, however, was that the world he
helped invent—thousands of smart people undertaking applied research--simply
overtook him.

Edison’s botanical lab.

If Edison’s lab workers got tired of grinding up plants, there was always the view.

Edison grew the second largest banyan tree in the world, bested only by a single cousin in India. In the end, however, Edison discovered that the most efficient producer of latex for natural rubber was. . .the goldenrod. It’s a reminder never to judge a breakthrough by its stamen.

MISSING THE NEXT
THING. With friends like Ford and Firestone,
and America having been at the mercy of foreign nations for its rubber during
WWI, it’s no wonder Edison spent the last ten years of his life working to improve
the production of natural rubber. By the
time of his death, however, petroleum-based rubber was the future. Microsoft missed “the search thing.” Google missed “the friend thing.” Edison missed “the petroleum thing.” Obviously, it happens to the best.

Edison’s home

Ford’s home. Not everything is original, but the building and grounds are immaculate. It’s all worth an afternoon.